Annual Report 2006

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Contents

Kela – a service for everyone 3

Kela in 2006 3

Benefits paid by Kela 5

National pension security and disability benefits 5

National health insurance 6

Rehabilitation 7

Unemployment security 7

Benefits for families with children 8

Financial aid to students 8

General housing allowance 8

Other benefits 8

Recovery 9

Other Kela operations 11

Customer service and the service network 11

Personnel and training 11

Data processing 12

Communications 12

Statistics and calculations 13

Research and development 13

Information services 13

International cooperation 13

Rehabilitation centre Petrea 13

Financial statements 14

Operating report by the board of Directors 14

Outlook for the future 18

Kela´s administration 19

Kela organization 22

Contact information 22

Abridged translation: The English Centre Helsinki Oy

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KELA — A SERVICE FOR EVERYONE

KELA IN 2006

Kela in 2006

Kela’s overall expenditure amounted to EUR �0.8 billion, benefit

expenditure accounted for EUR �0.5 billion of this figure. Total ex-

penditure increased by one per cent on the figure for the previous

year. Administrative expenses accounted for �.� % of total expendi-

ture. 59% of Kela funding came from central government and insur-

ance payments made up �5%.

Most Finns received some form of Kela benefits. Health insur-

ance benefits were paid to 4.0 million people and unemployment

benefits to 0.� million people. At year end, the number of pension

recipients was 0.8 million and family allowance was being paid for

�.0 million children.

Kela started to develop its telephone service for consumers so

that it is provided to people all over the country through the Kela

Customer Contact Centre. Units providing a service in Finnish were

set up in Joensuu and Lieksa and a unit providing a service in Swed-

ish was set up in Pietarsaari.

�006 was a theme year for customer service. The customer serv-

ice training provided to every member of the Kela personnel as part

of the customer service development programme �005–�008 was

continued so that by the end of March �006 practically everyone had

participated. After the seminars, the development work has been

continued in the workplace communities and has also been sup-

ported with process training. The development programme aims

to support the implementation of consistent principles and working

methods in customer service.

Customer service development proposals were collected at the

personnel seminars and they will be used in the preparations that

commenced in March for the programme to develop customer serv-

ice operations at Kela. The key issues in the development programme

are defining the principles of good service, developing customer

segmentation and the service channels, planning the future service

network, and developing the application process and the o rganiza-

tion of customer services.

Kela’s main office building was 50 years old in June. An illustrated

work of the architecture of Alvar Aalto who designed the building

was compiled in honour of this anniversary. The book is called El-

evating the everyday (Ylevöittää arjen in Finnish and En arkitektur

som förgyller vardagen in Swedish).

The Social Insurance Institution (Kela) looks after basic security

for all persons resident in Finland through the different stages

of their lives. The social security provided by Kela includes na-

tional pension and general survivors’ pension, disability benefits,

health insurance benefits, rehabilitation benefits, basic security

benefits for the unemployed, child care allowances, family allow-

ances, maternity grants, student benefits, general housing allow-

ances, conscript’s allowances and special assistance for immigrants.

Supervised by parliamentKela operates under the supervision of Parliament, and its admin-

istration and operations are supervised by �� trustees appointed by

Parliament and eight auditors chosen by them. Kela has a �0-mem-

ber Board of Directors that manages and develops its operations.

Close to the clientNearly all decisions concerning the grant of social security benefits

are taken at the offices of Kela’s insurance districts. Only decisions

concerning disability pensions, EU reimbursements of medical ex-

penses and certain decisions on financial aid for students and oc-

cupational health payments are taken by the central administration.

Decisions concerning university students’ applications for financial

aid are taken by the universities’ own financial aid committees.

Mission and valuesKela’s mission statement:

With you throughout life – supporting you through the times of

change

Our mission is to secure the income and promote the health of the

entire nation and support the capacity of individual citizens to care

for themselves.

Kela’s operations are based on the following values:

Respect for the individual

Expertise

Cooperation

Renewal

KELA IN BRIEF 2002 2003 2004 2005 2006Overall expenditure, EUR billion 10,0 10,3 10,6 10,7 10,8Benefits, EUR billion 9,7 9,9 10,2 10,4 10,5Administration expenditure/Total expenditure, % 3,1 3,2 3,3 3,1 3,3Benefits/GDP, % 6,7 6,8 6,7 6,6* 6,2*Benefits/social expenditure, % 26,2 25,6 25,2 24,7* 24,2*Benefits/Insured person, EUR/year 1 859 1 902 1 951 1 977 1 985*Staff on December 6 124 6 171 6 082 6 095 5 973*Estimate

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Benefits by Kela

5

BENEFITS PAID BY KELA

All benefitsKela’s benefit payments were EUR �0.5 billion. They grew nominally

on the previous year by 0.8% and decreased in real terms by �.0%.

There were 6� million payments of which �� million came from phar-

macies. Of the benefits, health insurance benefits increased the most

(5.4 %). Unemployment security benefits decreased �0.7%.

Benefits paid by Kela 2006 EUR million 2005 EUR million Change% Pensions and disability benefits 2 886,9 2 869,0 0,6Health insurance benefits 3 214,5 3 050,0 5,4Rehabilitation benefits 288,6 284,6 1,4Unemployment security benefits 1 014,1 1 135,4 –10,7Benefits for families with children1 1 825,2 1 832,5 –0,4Financial aid for students 736,9 728,2 1,2General housing allowance 439,4 436,9 0,6Other benefits 65,9 54,8 20,3Benefits total 10 471,6 10 391,4 0,8 1 Daily parental allowances are included in the health insurance benefits.

National pension security and disability benefitsPension payments totalled EUR �,779 million i.e. EUR �7.9 million

(0.6%) more than in �005. The growth was a result of the �.�% index

increase at the beginning of the year and the increase in the national

pension from September. Disability benefit payments totalled EUR

�08 million which is equal to the figure for the previous year.

The number of pension recipients was 788,000 at the end of the

year, i.e. 0.7% fewer than the previous year. The number of old-age,

survivors’, unemployment and disability pension recipients con-

tinued to decrease. However, the number of people only receiving

pensioners’ housing allowances, pensioners’ care allowances, child

increases or front-veterans’ supplement grew. The number of peo-

ple receiving housing allowance and pensioners’ care allowance as

national pension increased while the number of people receiving na-

tional pension (reducible by earnings-related pension) and the front

veterans’ supplement decreased. The number of people receiving the

full national pension was 94,500 (a decrease of �.6%)..

The number of recipients of child care allowance decreased by

400 (�.�%) to �7,400 at the end of the year. The number of people

receiving disability allowance increased by �.7% to �7,�00 at the

end of the year. As was the case in the previous year, the increase

was due to the rise in the recipients of the diet allowance. The diet

allowance was being paid to ��,600 people at year end either as pen-

sioners’ care allowance or disability allowance, which is 6.�% more

than the previous year. Kela received a total of �88,000 (decrease

of 4.5%) claims for pension, pension addition, disability allowance

or benefit adjustment. Altogether �0,000 (5.�%) were claims from

abroad, submitted on the basis of an EC regulation or social secu-

rity conventions. Of all the applications, �5% were claims for new

pensions or disability allowances. Of the �78,000 claims that were

settled ��5,000 were dealt with at Kela branch offices and 44,000

Benefits by Kela

by central administration. �5�,000 of the claims settled were from

Finland and �6,000 from abroad. The average processing time for

international claims was 4� days. The average national pension at

the end of the year was EUR �98 per month, including front-veter-

an’s supplement. The national pension of a single person entirely

dependent on national pension was EUR 5�6 per month in the first

municipal cost-of-living category. The average housing allowance

received by pensioners was EUR �50 per month.

Pensions and disability benefits

Pensions 2006 EUR million 2005 EUR million Change-%Pensions paid 2 778,8 2 760,9 0,6 National pensions1 2 661,7 2 635,4 1,0 Old-age pensions 1 724,0 1 735,6 –0,7 Under-65s 7,2 7,0 2,5 Disability pensions 783,9 756,9 3,6 Individual early retirement pensions 3,3 4,9 –31,7 Unemployment pensions 46,3 46,4 –0,2 Other2 107,5 96,5 11,4 Survivors’ pensions 37,3 37,9 –1,6Front-veterans’ supplements 79,7 87,6 –8,9Other benefits 4,7 4,2 12,1 Number of pensioners 31.12.2006 31.12.2005 Change-%Pensioners total 787 800 793 400 –0,7 National pension recipients 755 800 760 300 –0,6 Old-age pension recipients 477 900 482 700 –1,0 Under-65s 3 800 4 100 –8,6 Disability pension recipients 154 800 154 900 –0,1 Individual early retirement pensions 1 200 2 200 –42,2 Unemployment pension recipients 20 500 21 600 –5,4 Other3 102 700 101 100 1,6 Survivors’ pension recipients 32 000 33 000 –3,1 Structure of national pensions 31.12.2006 31.12.2005 Change-%National pension recipients total 653 200 659 300 –0,9 full 94 400 97 000 –2,6 reduced by employment 558 700 562 300 –0,6 other national pension3 102 700 101 100 1,6National pension recipients with housing allowance 172 900 170 300 1,5 pensioners’ care allowance 197 500 189 700 4,1 front-veterans’ supplement 84 800 94 200 –10,0 front-veterans’ additional supplement 42 200 47 600 –11,4 child increase 13 700 13 800 –1,0

1 Includes the housing allowances and child increases paid to the long-term unemployed.2 Pensioners’ housing allowances, pensioners’ care allowances and child increases paid by Kela to people with no actual pension.3 The person receives pensioners’ housing allowances, pensioners’ care allowances and front-veterans’ supplement or child increases from Kela either on its own or in conjunction with special assistance for immigrants/pension hassistance for the long-term unemployed

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Benefits by Kela

was carried out on reimbursing the costs of dose dispensing serv-

ices. The percentage of costs reimbursed for both basic and higher

reimbursement classes of medicines has changed and the fixed per-

sonal liability per purchase was abolished. A drug-specific personal

liability was introduced for medicines that come under the higher

special reimbursement class and for additional reimbursements.

The number of people receiving basic compensation for medi-

cine costs increased ��.8% – this was partly due to the reform of the

system of reimbursement for medicine costs. The number of those

claiming special compensation rose by �.�%. The number of people

receiving additional compensation for medicine costs decreased by

�.�%. Reimbursement of costs for dose dispensing was paid to �,600

people at a total of EUR 40,000.

EUR 9� million was paid out in reimbursements for dentists’ fees

in �006 which was approximately the same amount as for the pre-

vious year. Reimbursements for dental care were paid to �,0�9,000

people (0.�% increase).

Reimbursements for doctors’ fees increased by �.5% and re-

imbursements for examination and treatment costs by 8.�%. The

number of persons receiving reimbursements also increased. Re-

imbursements for travel costs increased by �0.7% on the previous

year. This also includes reimbursement for travel provided as part

of rehabilitation.

Health insurance benefits 2006 EUR million 2005 EUR million Change-% All 3 214,5 3 050,0 5,4 Daily allowance 1 483,6 1 380,5 7,5Daily sickness allowance1 755,7 711,1 6,3 Daily parental allowance2 727,9 669,4 8,7Medical expenses compensation 1 496,8 1 449,4 3,3 Medicines 1 100,3 1 076,1 2,3 Basic compensation 366,6 369,9 –0,9 Special compensation 619,7 607,5 2,0 Lower 226,4 237,4 –4,6 Higher 393,3 370,1 6,3 Additional compensation3 114,0 99,5 14,6 Private doctors’ fees 63,4 62,5 1,5 Private dentists’ fees 91,6 91,5 0,1 Private examination and treatment 60,1 55,5 8,2 Travel and transportation4 181,4 163,9 10,7Other benefits 234,1 220,1 6,4 1 Also includes daily sickness allowance for persons insured under the Self-Employed Persons Pensions Act (YEL), daily sickness allowance under the Pension Institute of Farmers, daily allowances and loss-of-earning compensation paid under the Act on Communicable Diseases, as well as daily allowances paid to donors of organs or tissues.2 Includes special care compensation and compensation to employers for annual leave costs3 In 2006, the maximum level of personal liability for the cost of medicines was EUR 616.72.4 Includes additional compensation for travel. In 2006 the maximum level of personal liability for the cost of travel was EUR 157.25.v

Disability benefits Allowance paid 2006 EUR million 2005 EUR million Change-%Child disability allowances 72,8 72,7 0,2Disability allowances 35,3 35,4 –0,2 Number of persons receiving 31.12.2006 31.12.2005 Change-%Child disability allowances 37 400 37 800 –1,1Disability allowances 27 100 26 600 1,7

National health insuranceHealth insurance benefit expenditure grew by EUR �64 million on

the previous year (5.4%). Kela paid out EUR �,��4 million in health

insurance benefits, which were received by 4.0 million people (an

increase of 5.0%).

The reimbursement of medical expenses grew by �.�%. Daily

sickness allowance increased by 6.�% and daily parental allowance

by 8.7%. Annual leave expense compensation that is part of parental

allowance was paid out to the employers of �0,�00 employees and to-

talled EUR ��,7 million (an increase of 45.6%). The increase in annual

leave expense compensation was a change in the legislation from the

beginning of �005, which meant that the parental allowance that is

the basis for this annual leave expense compensation was increased.

An amendment to the Sickness Insurance Act meant that from the

beginning of April the sickness allowance for persons insured under

the Self-Employed Persons Pensions Act (YEL), was also paid dur-

ing the waiting period. The amendment concerns periods of work

incapacity that commenced on �.�.�006, or later. Daily sickness al-

lowance for persons insured under the Self-Employed Persons Pen-

sions Act (YEL) was paid to ��,�00 entrepreneurs totalling EUR �.4

million.

The average amount of daily sickness allowance was EUR 45 and

daily parental allowance EUR 4�. The minimum daily allowance was

EUR �5.�0 /day. Daily sickness allowance of the minimum amount

or less was paid to �6,400 people (4.7% of the recipients of daily

sickness allowance). Earnings-based daily parental allowance of the

minimum amount was paid to �7,600 mothers (�7.6% of mothers

receiving daily parental allowance).

The number of fathers who took advantage of the extended pa-

ternity allowance (so-called father’s month) was 5,�00 fathers (an

increase of 600). They received EUR 4.0 million in daily parental

allowance.

The number of daily sickness allowances settled was 690,000 (an

increase of �.7%). Of these 40,000 were settled in employee sick-

ness funds. The average processing time for new claims was �4 days,

which was the same as for the previous year. A total of 9.� million

settlements for reimbursements for medical expenses were made,

0.4 million of these were made in employee sickness funds. The

average processing time for claims was �� days.

Of the reimbursements for medical expenses, the reimbursement

of medicine costs grew �.�% (6,� % during the previous year). The

reimbursement of medicine costs was reformed after the Sickness

Insurance Act was amended at the beginning of the year, and a trial

7

Benefits by Kela

Recipients of health insurance benefits 2006 2005 Change-%All benefits 4 043 100 3 849 900 5,0 Daily sickness allowance1 348 800 345 300 1,0 Daily parental allowance2 149 000 146 600 1,6 Medical expenses compensation 3 990 800 3 783 200 5,5 Medicines 3 584 700 3 261 500 9,9 Basic compensation 3 465 400 3 100 200 11,8 Special compensation 1 098 500 1 085 800 1,2 Lower 833 700 828 200 0,7 Higher 468 300 454 500 3,0 Additional compensation 165 600 167 600 –1,2 Private doctors’ fees 1 523 900 1 491 400 2,2 Private dentists’ fees 1 019 200 1 016 400 0,3 Private examination and treatment 895 400 849 300 5,4 Travel and transportation 644 700 623 900 3,3 1 Does not include those who have only received daily sickness allowance under the Self-Employed Persons Pensions Act (YEL).2 Recipients of daily parental allowance (does not include recipients of special care compensation, or persons whose employees have been paid compensation for annual leave costs).

RehabilitationKela’s rehabilitation expenditure totalled EUR �89 million, which

was �.4% more than the previous year. The cost of individual re-

habilitation was EUR �8� million, EUR ��� million of which was

paid on rehabilitation (an increase of �.0%) and EUR 60 million on

rehabilitation allowances (an increase of �.�%).

Kela’s rehabilitation services were spread over 88,400 people (an

increase of �.�%). Half of these were new rehabilitees. Rehabilitation

allowance, which is paid as income security for the duration of the

rehabilitation, was paid to 6�,500 people (a decrease of 0.7%). Out

of all the recipients of rehabilitation allowance, 7�% (4�,500) were

in rehabilitation provided by Kela. Rehabilitation allowance was paid

for an average of �6 days, and totalled about EUR �7 per day.

Over half of the of rehabilitation arranged by Kela constitutes

discretionary (medical) rehabilitation and was received by 5�,500

people. Vocational rehabilitation was received by �6,400 people with

reduced functional capacity and ��,400 severely disabled persons

received medical rehabilitation.

With �4,800 persons taking part, ASLAKÆ_ courses (vocation-

ally oriented medical rehabilitation) were the most common meas-

ure for discretionary rehabilitation. Courses designed for various

types of illnesses were attended by ��,000 people. Discretionary

psychotherapy was received by ��,�00 rehabilitees, �,600 of whom

took part in psychiatric rehabilitation for children and young people

(�6–�5 years of age). Periods of treatment at rehabilitation centres

were organized for �,800 people. �,400 rehabilitees took part in re-

habilitation development projects.

Unemployment securityKela’s unemployment benefits expenditure decreased by �0.7% to-

talling EUR �,0�4 million, of which EUR 860 million was paid as

labour market subsidy (a decrease of ��.5%) and EUR �09 million

in basic daily allowance (a decrease of 7.8%). In addition to the

improvement in the employment situation, the decrease in labour

market subsidy has also resulted from the fact that labour market

subsidy paid as combined subsidy will be gradually phased out. Un-

employment security which has been provided by employment of-

fices since the beginning of the year replaced the combined subsidy

which is no longer provided.

Unemployment benefits were paid to �86,600 people during the

year, with benefits paid for an average of �4� days per recipient. Ba-

sic daily allowance was paid to 49,900 people (a decrease of 5.4%)

and labour market subsidy to ��4,400 people (a decrease of 6.7%).

In addition, labour market subsidy was paid as combined subsidy to

the employers of �7,400 long-term unemployed people (a decrease

of 50.�%) and integration allowance was paid to �0,800 immigrants

(an increase of �.9%).Altogether, 74,900 of those receiving labour market subsidy took

part in labour market training, trainee work or other labour market

programmes during the year. In addition, 6,500 recipients of labour

market subsidy participated in rehabilitation work and �,000 re-

ceived a labour market subsidy in the form of travelling allowance.

9,�00 of those receiving integration allowance participated in labour

market activities or equivalent measures. �8.9% of labour market

subsidy was paid for the duration of activities under labour market

programmes.

The average basic daily allowance under employment security

was EUR ��.70 while the average daily labour market subsidy was

EUR �4.80. An adjusted daily allowance was paid for at least part of

the year to �4.8% of daily allowance recipients and ��.�% of those

receiving labour market subsidy.

Labour market training support was paid to 6,�00 people. �6,000

recipients of labour market subsidy and 6,000 recipients of integra-

tion allowance participated in labour market training. A total of EUR

4� million was granted in training benefits. EUR 4 million was paid

in daily training allowance to �,�00 people.

Kela took a total of 84�,000 decisions on claims for unemploy-

ment security (a decrease of 7,� %). ��7,000 new claims were settled,

and the average processing time was �5 days. Of the new claims, 85%

were settled within four weeks of the application’s arrival.

Reimbursement of occupational health care expenses paid to em-

ployers came to EUR �96 million (increase of �0.�%). Approximately

�.7 million employees came under the sphere of occupational health

care. Reimbursement of occupational health care expenses paid to

entrepreneurs and other self-employed persons stood at EUR �.�

million. Reimbursements totalling EUR �0.8 million were paid to

the Student Health Foundation.

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Benefits by Kela

Benefits for families with childrenExpenditure on child day-care subsidies decreased by 0.5%. A total

of EUR �95 million was paid out in subsidies, of which EUR ��6

million in child home care allowance (a decrease of �.�%), and EUR

50 million in private day-care allowance (an increase of �.9%) and

EUR 9 million in partial care allowance was paid out. Municipal

supplements amounted to EUR 59 million.

Child home care allowance was paid to ��6,500 parents of

�79,800 children (an increase of �.0%). There were �9,�00 recipi-

ents of private day-care allowance (an increase of 5.�%) and �9,�00

people received partial care allowance (an increase of �.�%).

Maternity grants totalling EUR �0.8 million were paid (a de-

crease of �.�%), , including adoption grants of EUR 0.7 million for

offsetting some of the costs of international adoption. Maternity

grants were paid to 57,800 parents, �08 of whom also received adop-

tion grants.

The total amount of family allowance paid was EUR �,4�9 mil-

lion (a decrease of 0.4%). In December, family allowance was paid

to 568,�00 families (a decrease of 0.�% on last December), with

increased family allowance paid to �00,�00 single-parent families.

Family allowance was paid for �,0�0,700 children, and the increased

family allowance for �55,�00 children.

Financial aid to studentsStudent benefits totalled EUR 706 million (an increase of 0.8%), of

which EUR 4�6 million (a decrease of �.�%) was for study grants

and EUR �5� million (an increase of 8.�%) for housing supplements.

Interest subsidy and interest allowance for study loans totalled EUR

�.5 million, payments made on the basis of government guarantees

for student loans EUR �8 million and meal subsidy for students in

higher education EUR �� million.

Student benefits were paid to ��4,�00 students. Of these, student

benefits were paid to ��4,600 (a decrease of �.9%) and housing sup-

plement to ��8,400 (a decrease of �.7%). Government guarantees

were approved for a total of ���,�00 (a decrease of �.4%) students.

Interest allowance was paid to 7,500 people, which was one-fifth

lower than the previous year.

Student loans totalled EUR �.� billion at year end (an increase of

0.8%). There were �09,�00 students with student loans (a decrease

of �.8%). The average loan was EUR 4,�00.

Decisions on financial aid claims totalled 409,�00, �94,600 of

which were processed at Kela branch offices (an increase of �0.0%),

90,�00 at the Kela Student Financial Aid Centre (a decrease of �8.7%)

and ��4,�00 at university and polytechnic financial aid centres (a

decrease of 8.�%).

School transport subsidy reached a total of EUR �� million (an

increase of 9.9%) for the transport costs of 65,�00 students. Matka-

huolto Ltd invoicing accounted for 69% of the total.

General housing allowanceGeneral housing allowance totalled EUR 4�9 million, a 0.6% increase

on the previous year. At year end, households receiving housing al-

lowance numbered �50,�00 (a decrease of �.0%). The total percent-

age of families with children was �9.7 and single-parent families

made up a good quarter of the households. The percentage of single

people increased and was 5�.� at year end. General housing allow-

ance covered just under �00,000 people at the end of the year, mak-

ing up 6.8% of the population under 65.

The number of unemployed households was 96,400, or 64.� %,

which was a decrease of 0.4 percentage points. Labour market sub-

sidy or basic unemployment allowance made up the income for over

half of the households. At the beginning of March �006 a reform was

introduced to improve the employment prospects of those receiving

benefits. The reform states that the housing allowance eligibility re-

view can be put off for three months after a long-term unemployed

member of a household has found employment. There have been

�,400 such cases, i.e. a fifth of all the decisions regarding an increase

in income.

The average housing allowance at year end was EUR ��0. a

month. The average income per household was EUR 7�� a month,

and housing expenditure was EUR 444.

During the year under review, Kela took �94,�00 decisions on

claims for general housing allowance, taking into account decisions

for discontinuation (a decrease of �.7%). The average processing

time for claims was �9 days.

Other benefitsExpenditure on conscript’s allowances increased by 8.7% on the pre-

vious year. A total of EUR �7 million, was paid and housing assist-

ance accounted for EUR �5 million of this. Conscript’s allowances

were paid to a total of ��,400 households. When other family mem-

bers are included, the allowances covered a total of ��,000 people. Of

the recipients, �0,400 were doing their military service, �,�00 were

performing non-military service and 970 were relatives. Recipients

of conscript’s allowance had a total of �80 children.

Compensation for the rehabilitation travel expenses of front vet-

erans came to EUR �.0 million. Studies on farmers’ working condi-

tions were funded to a total of EUR 0.8 million and the National

Centre for Agricultural Health, which operates under the Institute of

Occupational Health, was reimbursed a total of EUR 0.� million.

In �006, special assistance to immigrants was paid to 4 500 peo-

ple, totalling EUR �9 million. The average amount of assistance paid

was EUR �47 per month.

The long-term unemployed received EUR �4 million in pension

assistance. By the end of �006, �,600 people were receiving this as-

sistance. The average amount of assistance paid was EUR 709 per

month.

9

Benefits by Kela

Recipients of other benefits 2006 2005 Change-% Rehabilitees 106 500 105 100 1,3 Rehabilitation services from Kela 88 400 86 800 1,9 Rehabilitation allowance from Kela 61 500 62 000 –0,7Unemployment protection Basic unemployment allowance/ or labour market subsidy 266 900 285 600 –6,6 Basic unemployment allowance 49 900 52 800 –5,4 Labour market subsidy 224 400 240 600 –6,7 Labour market training 36 000 34 900 3,3 Training/Instruction for working life 42 200 41 200 2,5 Rehabilitation work 6 500 4 700 38,1 Travelling allowance 1 000 700 52,5 Labour market subsidy as combined subsidy 17 400 34 900 –50,1 Labour market training support 6 100 6 200 –1,8 Daily training allowance 1 200 1 100 4,7 Labour market subsidy as integration allowance 10 800 10 600 1,9 Maternity grant (families) 57 800 56 900 1,6 Family allowance Families (Dec 31.) 568 300 569 600 –0,2 Children (Dec 31.) 1 030 700 1 034 400 –0,4 Child day-care subsidies Families 145 500 143 800 1,2 Children 214 900 212 700 1,0 General housing allowance (households Dec 31.) 150 200 154 800 –3,0 Student benefits Financial aid to students 288 1001 292 9002 –1,7 School transport subsidy 51 0001 49 6002 2,8 Conscript’s allowance (households) 12 400 12 200 1,5 Special assistance to immigrants (Dec 31.) 4 500 4 100 10,5 Pension assistance for the long-term unemployed (Dec 31.) 2 600 2 800 –8,9

1Academic year 2005/2006. 2Academic year 2004/2005.

RecoveryThe number of benefits claimed for recovery at year end (including

those recovered on the basis of evaluation of financial situation) was

EUR ��6.6 million (an increase of �.�%). The amount of outstanding

student loan guarantee payments for recovery was EUR �80 million

at year end (a decrease of 0.9%).

Other benefits 2006 EUR million 2005 EUR million Change-%Rehabilitation 288,6 284,6 1,4 Rehabilitation services 224,3 220,0 2,0 Rehabilitation allowance 59,9 59,2 1,1 Other expenditure 4,5 5,4 –17,2Unemployment protection1 1 014,1 1 135,4 –10,7 Basic unemployment allowance2 109,4 118,7 –7,8 Labour market subsidy3 859,5 971,7 –11,5 Labour market training4 41,3 41,5 –0,4 Daily training allowance 3,5 3,3 5,6Maternity grant 10,8 11,0 –2,1Family allowance 1 419,4 1 424,4 –0,4Child day-care subsidies 395,0 397,0 –0,5 Statutory allowance 336,3 340,0 –1,1 Municipal supplements 58,7 57,1 2,9General housing allowance 439,4 436,9 0,6Student benefits 736,9 728,2 1,2Conscript’s allowance 16,6 15,2 8,7Special assistance for immigrants 18,7 17,0 10,3Pension assistance for the long-term unemployed5 (from 1.5.2005) 23,9 16,1 48,2Others 2,0 2,2 –10,7 1 Includes job alternation compensation plus supplements and labour market training subsidy.2 Includes earnings-related allowances paid out by Kela to Finnish nationals seeking employment outside Finland.3 Includes integration allowance and combined subsidy.4 Includes maintenance allowance paid during training support and labour market training.5 Housing allowances and family allowances associated with pension assistance are included in the pensions.

�0

Benefits by Kela

��

OTHER KELA OPERATIONS

Other Kela operations

Customer service and the service network At year end, Kela’s five insurance regions comprised 6� insurance

districts. There were �06 branches in different parts of Finland pro-

viding client services; �6� of these were full-service offices with daily

office hours, while 4� were sub-offices with restricted office hours.

Kela was also involved in �45 joint-service projects.

Kela offices on December 31, 2006

Insurance region Full-service Sub-offices Total offices offices Northern Finland 43 17 16Western Finland 43 8 49Eastern Finland 56 16 30Southwestern Finland 52 0 31Southern Finland 69 2 19

Total 263 43 145

The process of increasing the size of Kela’s insurance districts

continued during the year and a total of �4 insurance districts were

merged. The process of distributing the workload more evenly con-

tinued by transferring work from overworked offices to other offices.

Kela took part in various projects to develop online services. The

work to develop Kela’s telephone service for consumers into a na-

tional service at the Kela Customer Contact Centre was started. The

offices received 9�,�00, claims for employment pensions, which is

�.7% fewer than the previous year. Kela’s customer feedback system

was contacted over 5,000 times.

On the basis of a customer questionnaire given to people visiting

Kela offices over the period May � to 5, �006 (�6,550 respondents)

Kela’s services were awarded the general grade of 8.9, according to

the school grade system. As has been the case in previous years, cus-

tomers were most satisfied with the friendly service provided. Cus-

tomers were also satisfied with the advice that was provided: 94% of

respondents felt they had been provided with sufficient information

on the issues that had prompted their visit to the office. Half of all

respondents had come to the office to hand in an application form.

Personnel and trainingAt the end of �006, the number members of staff working for Kela

had decreased by ��� compared with the previous year and at the

turn of the year this figure decreased even more. The personnel age

structure and increased numbers of people retiring has made it pos-

sible to adapt the number of personnel to the development of opera-

tions and working methods.

An extensive programme to develop personnel data systems

was launched during the year under review as part of the complete

reform of the enterprise resource planning system. New processes

and their information systems were planned and taken into use to

maintain the basic information of the personnel, the surveying of

skills and time management. The ‘Tahti’ system was taken into use

in November and once it is finished it will have an impact on practi-

cally all personnel operations.

The development of health promotion at work was continued

according to the TAIKA operational model. The units planned ac-

tivities that were more obviously focussed on issues associated with

working. The new focus areas for �006–�009 were defined as skills,

organization of work and ageing. An operational model was created

to support well-being at work to deal with problems that jeopardize

working capacity. Fitness vouchers were taken into use to promote

self-motivated fitness.

An equality plan was drawn up for �007–�0�0. It aims to actively

promote equality in its benefits operations and customer services

and as an employer. Gender equity and equality has an effect on

all personnel operations, particularly conditions of employment,

recruitment and career advancement.

Kela held a record number of training days and events and never

in its entire history of providing training has Kela provided as much

training as it did in �006. A total of 954 training courses were held

during the year (798 in �005) and they were attended by �8,�09

people (�6,8�4), totalling ��,�68 (�0,���) course days.

One of the focus areas in skills development was supporting

expertise in benefits. A comprehensive long-term plan which in-

cludes training products for the maintenance and development of

benefits expertise for customer service and decision-making was

drawn up.

Customer service training was continued. Concrete measures to

improve customer services were drawn up for the follow-up work

to be carried out in the various units.

Implementation of the first phase of the Tahti system was sup-

ported by extensive training, which focussed on the functionality

and processes of the systems various areas and preparation was

provided for using the system.

Personnel figures 2006

Numbers of personnel 2005 2006Entire personnel 6 095 5 973Full-time 5 150 5 067Part-time 945 906 Permanent members of staff 5 575 5 525Full-time 4 699 4 647Part-time 876 878 Permanent members of staff Local administration 3 915 3 777Central administration 1 309 1 264Regional administration 351 484

��

Other Kela operations

Information on permanent members of staff 2005 2006Average age 47,2 47,5Educational level index 4,9 5,0Number of training course days/person 3,6 3,6Sick days index 4,0 4,2Members of staff leaving Kela 237 389New members of staff 273 205Retirement age 61,4 61,8Members of staff taking old-age pension 96 104Members of staff taking disability pension 50 52

Data processingA data processing action plan for �007–�0�� was drawn up in con-

junction with Kela’s customer service strategy.

New e-transaction services for consumers and officials were

launched according to plan. Kela’s first self-service applications were

implemented to assist consumers when providing information on

their details for study grants and unemployment benefits and to

automate and make the processing of benefits decisions easier. An

online service was created for employers so that they can inform

Kela of salary details, for example. A service was set up in coopera-

tion with the Finnish Centre for Pensions enabling old-age pension

to be applied for online. Kela also took part in the development of

electronic identification of administrators. International online data

communications was also extended.

Legislation reforms meant that changes had to be made to many

applications for the processing of benefits. The most significant legal

reforms were the increase in the national pension, the increase in

parents’ income level regarding eligibility for financial aid for stu-

dents and changing payment of partial daily sickness allowance and

reimbursement of medical expenses from the ‘power of attorney’

system to a system of direct reimbursement. The standardizing of

applications for the processing of benefits was continued. An appli-

cation to support the processing of benefits and customer service

(OIWA) was launched.

The first phase of the total reform of applications for financial,

materials and personnel administration and their user environ-

ments were taken into use and the second phase was implemented.

New statistics were produced for the Kelasto reporting system ac-

cording to plan.

The legislation needed for the development of online social and

healthcare services started to be prepared from the spring onwards.

Kela was given the task of implementing the necessary informa-

tion technology services required for the new law on the electronic

processing of data concerning social and healthcare clients and the

new law on the use of e-prescriptions. The preparations are being

carried out alongside the preparations for the laws so that the serv-

ices can be launched in �008.

The mainframe computers were replaced on October �, �006. The

capacity of the computers could be decreased because some of the

services, such as e-mail, were transferred from the mainframe com-

puters to Windows and Linux servers operating on x86/64 technol-

ogy. Also the use of the resources in the browser-based online docu-

ment management application that was introduced at the beginning

of the year was clearly lower than predicted. The total number of

e-transactions within Kela reached �.65 billion.

A decision was made at the beginning of the year to completely

update the workstations and data communications network. There

are approximately 6,800 workstations in use now.

CommunicationsThe updating of the Kela website was started in November �006. This

project will continue until �008. During the year under review there

were 5.9 (4.9) million visitors to the kela.fi website and e-transac-

tions were made by over a million identified users. The number of

e-transactions increases significantly every time a new service is

taken into use.

A total of �8 million messages were sent via e-mail and �0.4 mil-

lion documents were sent to customers. About 90 media bulletins

were issued. In addition, a total of 9 briefings, meetings with report-

ers and gatherings for interest groups were arranged.

During the year under review, Kela published four issues of Kelan

sanomat and FPA-bladet. The former was sent to all Finnish-speak-

ing households (about �.� million copies per issue) and the latter to

Swedish-speaking and bilingual households (about �70,000 copies).

There were �0 issues (��,500 copies each) of the magazine Yhteispeli

and six (�7,000 copies each) of Sosiaalivakuutus.

The Finnish and Swedish brochures on basic social security (�0

brochures) and the English-language brochure ‘A Guide to Ben-

efits’ was updated. The latest Kelainfo brochures were published:

Lääkkeiden korvaukset muuttuvat �.�.�006 (Refunds on medicines

will change from October �, �006), Yrittäjän päiväraha ja muu Kela-

turva (Entrepreneur’s daily allowance and other security provided

by Kela), Työttömyysturvan sähköinen asiointipalvelu (Online serv-

ices for unemployment security benefits) and the Osasairauspäivä-

raha työhönsä palaavalle (Partial daily sickness allowance for those

returning to work) and Suorakorvaus �.�.�007 (Direct reimburse-

ment January �, �007), brochures which provide information on the

reforms that will take place in �008. Almost �.4 million brochures

were distributed to customers. Kela participated in compiling and

funding of a guidebook for social security for temporary workers

(Keikkatyöläisen sosiaaliturvaopas) and has continued to cooperate

in setting up a website on social security for entrepreneurs, a bro-

chure on working abroad (Työkomennus ulkomailla), and private

households as employers (Kotitalous työnantajana) and a guide to

services for the visually impaired (Näkövammaisten palveluopas).

Kela was represented at the Finnish Medical Convention, at the

Child �006 fair in Helsinki in May, the Farmari Agricultural Fair in

August in Seinäjoki, the Job Fair Europe and Expat Fair Finland in

Helsinki in September, the Studia �006 study fair in October-No-

vember and the Rekisterit auki! register day event in Helsinki in

November.

��

Other Kela operations

Statistics and calculationsThe development work on statistical architecture was continued by

completing the data content of the Kelasto browser-based system.

The claims processing section was completed. The data on the health

situation of the municipalities from the ‘health barometer’ were en-

tered into Kelasto as dynamic reports and interactive maps. Once

the reports were published on the Kela website it was possible for

individuals to access this data.

A total of �4 printed statistical publications were produced. In

addition to this four publications were produced, two together with

the Finnish Centre for Pensions, one with the National Agency for

Medicines and one with the Insurance Supervision Authority. All

of the printed statistical publications were published on the Kela

statistics pages on the Internet. The Statistical Yearbook was also

published on the Internet for the first time. The work to improve the

quality of the statistics progressed. A summary of the quality of each

of the �4 statistics produced by Kela was compiled and published on

the Internet. The Statistical Yearbook which comprises all of Kela’s

statistics was included as part of the official statistics of Finland.

The annual actuarial liability calculations for Kela social secu-

rity were compiled for the Ministries. Forecasts, calculations and

analyses were obtained for the development and implementation of

social security. The Population projection and Actuarial reports on

the long-term forecasts for development of the social security pro-

vided by Kela were published. The internal operations of Kela were

also supported by the production of forecasts and calculations to be

used by Kela’s own units. Calculation systems were updated and the

changes required by the financial reform for health insurance and

legislation were implemented.

Research and developmentDuring the year under review, research was increasingly focussed

on the benefits and services provided by Kela, and on research into

its own operations. During the year, rehabilitation, medicine costs

and incapacity for work was also studied, the Finnish social secu-

rity system was compared internationally, the effects of the EMU on

social security were investigated and citizens’ attitudes to Kela were

assessed. Research projects on students in upper secondary voca-

tional education and training, the development and alternatives to

basic security and the effect of incentives were also launched.

The development of population groups’ living conditions were

studied from various perspectives. Social and health security sys-

tems were assessed and changes made were investigated. Good

progress was made in the use of economic simulation models, and

Kela as the provider of social security was assessed.

A report on customer service and working conditions at Kela

based on the Kela barometer was published. Reports on the many

forms of care provided in Finland, Kela’s impact on society and the

problems in the basic security for the unemployed were also pub-

lished. Publishing on the Internet was also increased. Research re-

ports were published at briefings and information events and as

bulletins and on the Internet.

A research seminar on the injustices in Finnish social policy or

social security was held and Vääryyskirja (A book of injustice) was

published. The articles in this book dealt with issues such as dis-

criminatory social work, old people who are prisoners in their own

homes, problems faced by mothers who stay at home, controversial

child custody decisions and the forgotten social consequences of the

changes to the structure of farming.

Finland’s EU Presidency was also evident in Kela. In a six-part

series of information briefings, Finland’s MEPs explained current

EU social and health security issues.The external assessment of

Kela research was completed in June �006. The assessment group

considered that Kela’s research activities were vital and the quality

of research was satisfactory, and in places, excellent.

Information servicesThe Information Services monitored both online and printed data,

gathering information from a variety of sources. Information was

mainly distributed to Kela’s own units, but also to external custom-

ers, and increasingly over the Internet and the Kela intranet (Kela-

net). The unit continued to cooperate with other information service

units in the administrative sector under the Ministry of Social Af-

fairs and Health and specialized libraries.

International cooperation Work related to the implementation of EU legislation and social

security agreements made up a considerable part of international

operations. Kela took part in related negotiations with the national

social insurance institutions in other Nordic countries and bilater-

ally with Estonia, Sweden and Germany. During the year Kela par-

ticipated in the work of the social security committee under the

Nordic Council of Ministers, aiming at finding solutions for remov-

ing boundaries restricting mobility within the Nordic countries. Kela

participated in the preparations for a brochure on the social security

provided by the Nordic countries.

Kela was also involved in the work of the International Social

Security Association (ISSA), the World Health Organization (WHO)

and the Foundation for International Studies on Social Security

(FISS). It also cooperated with social security research institutes in

EU Member States and other countries.

Kela took part in hosting and organizing international research

meetings during Finland’s EU Presidency.

Rehabilitation Centre PetreaKela’s Rehabilitation Centre Petrea produces rehabilitation services

for Kela and other clients. Profits for the year under review reached

EUR 50,000 (EUR ��0,000). Petrea had a turnover of EUR 8 million

(EUR 8.5 million). The number of customer days totalled 47,405, an

increase of �.5% on the previous year. From the beginning of �007

the work carried out by the rehabilitation centre will be transferred

to the Petrea Foundation.

�4

Financial statements

Based on the principles of good governance and openness, Kela’s

Board of Directors has prepared a report on Kela’s administrative,

management and control systems (Corporate Governance). This is

available in Finnish on the Kela Internet and intranet sites. It in-

cludes an overview of the principles of Kela’s administration, the

related legislation, relevant decisions by the Trustees and the Board

of Directors, and organization of operations.

Strategic baseKela’s mission is to secure the income and promote the health of the

entire nation, and to support the capacity of individual citizens to

care for themselves. Kela’s operations are based on the following val-

ues: respect for the individual, expertise, cooperation and renewal.

Kela’s strategic aim is to provide its customers all over the country

with the best possible public sector service. Kela also actively partici-

pates in the development of the welfare society. The success of Kela is

based on competent and professional staff, a comprehensive service

network, clearly-defined service channels, a high level of quality,

cost-effective operations and effective information technology.

In its strategic documents, Kela’s operations are examined from

four perspectives: impact on clients and society, economics, pro-

cesses and the renewal of personnel and the working community.

Kela’s aim is to be service-minded, to provide a variety of serv-

ice channels and to actively develop social security research and

implementation and the legislation which affects Kela operations.

Kela’s solvency is ensured. The main aim is to provide high-quality

services efficiently for customers.

A customer survey is held annually to establish the level at which

these aims are achieved and to gauge the performance of customer

service. In addition, a customer feedback system makes it possible

to regularly obtain feedback on the services provided by Kela. The

survey makes it possible to assess annually the level at which the

personnel consider the values to be evident in the practical opera-

tions of the work community.

Board activities in 2006The Board convened ten times during the year. In addition, an an-

nual Board strategy seminar was held, at which Kela’s strategic tar-

gets and focus areas were discussed and developed. The Board also

held a separate advanced ‘evening session’, which dealt with issues

associated with Corporate Governance.

The Board visited the Northwestern Uusimaa district in the

Southern Finland insurance region, and, among other things, fa-

miliarized itself with the Lohja office.

Key decisions in 2006The Board has accepted the operational and financial plan and

project portfolio for �007-�0�0, and the Kela scorecard for �007,

and signed performance agreements with the Director-General and

the Directors for �007. The operational and financial plan comprises

Kela’s mission statement, vision, values, strategic base and score-

card. Central projects in the project portfolio for �007-�0�0 include

the development of a programme to improve customer service, im-

plementation of the revised benefit guidelines, and development of

electronic customer services. The Board of Directors participated in

the development of Kela’s process management.

The Board appointed the Kela Research Advisory Board for the

period January �, �006 to July ��, �007. The Advisory Board supports

Kela’s research activity and its development, and includes extensive

representation of stakeholders in the research field. The Board was

also provided with a report on the external assessment of research

operations. The Board also appointed the Kela Occupational Health

Advisory Board for a �-year period commencing April �, �007.

During the year, the Board dealt with changing Kela’s Rehabilita-

tion Centre Petrea into an independent foundation on a number of

occasions. The government bill, prepared in cooperation with the

Ministry of Social Affairs and Health, was submitted to Parliament

on August 8, �006. The Parliament passed the bill allowing Kela’s

internal Rehabilitation Centre Petrea to operate as an independent

foundation. The Act came into force on January �, �007. The Board

nominated the members for the foundation’s Council on November

�4, �006.

The Board agreed that Kela would take charge of maintaining

the national social and health care services electronic archive and

prescription database, and actively monitored the progress of the

initiative. It authorized those in charge of the project to negotiate

on behalf of Kela and to prepare for the update and distribution of

the electronic prescription database as part of the national archive’s

operations. The relevant act was passed by the Parliament on De-

cember ��, �006.

The Board nominated Sirkka Hongell, M.Pol.Sc., Chief Human

Resources Officer, as the Regional Manager of the Southern Finland

Insurance Region as of June �, �006; Tiina Huusko, M.D., Ph.D., as

the Rehabilitation Manager in the Health and Income Security De-

partment as of September �, �006; and Jorma Järvisalo, Research

Professor, as the Medical Director of Kela as of January �, �007.

A total of six decisions on merging insurance districts were made.

There were 55 insurance districts as of January �, �007.

The Board has submitted a proposal to the Parliamentary Trus-

tees to change its accounting principles so that the institution’s as-

sets are valued in the financial statements at current values, and that

the book values determined in the pension liability fund can also

FINANCIAL STATEMENTS

OPERATING REPORT BY THE BOARD OF DIRECTORS FOR 2006

�5

be used as the values for assets. The Board also twice clarified an

authorization it had given regarding administrative matters.

In its meetings, the Board received monthly, quarterly and half-

yearly reports from the Director-General, and provided feedback on

them. Particular attention was paid to the development of the speed

and quality of benefit decisions and the development of a system to

monitor personnel requirements.

FundingOverall Kela expenditure in �006 came to EUR �0,8�9 million. This

comprises EUR �0,47� million in benefits and EUR �58 million in

operating expenses. Total expenditure increased by EUR �07 million

i.e. �% on the previous year.

Income and the government guarantee payment to the national

pension insurance fund totalled EUR �0,968 million, an increase of

EUR �98 million, i.e. �.8%.

National health contributions paid by the insured accounted for

EUR �,458 million and employers’ national pension and health con-

tributions for EUR �,�70 million. Kela received EUR 56 million in

wage earners’ unemployment insurance contributions. Insurance

contributions made up a total of �5% of overall income. Government

contributions accounted for 59% and those from municipalities for

5% of total income. Kela no longer received value added tax.

InvestmentsThe Board annually approves Kela’s investment plan. The objectives

of the investment operations are security, profit, cash convertibility,

and adequate diversity and spread of investments. Account must

also be taken of the nature and purpose of the national pension

insurance (NPI) fund, the national health insurance (NHI) fund

and the pension liability fund, and the requirements these set for

investment activities.

Investment operations of the NPI and NHI funds focus on invest-

ing liquid assets. The assets of the pension liability fund cover Kela’s

liability for staff pensions. The fund’s assets are invested according

to the principles of portfolio investment. The fund will continue to

be augmented until �0�0. The first aim for asset allocation is to in-

crease returns and second to secure the easy cash convertibility of

�6

Financial statements

assets in preparation for a later stage in the fund’s development.

A set of goals and a schedule have been set for international diver-

sification of investments.

The international stock markets produced a good yield for the

fourth consecutive year. Crucial factors contributing to this develop-

ment were the continued global economic growth, the mostly mild

valuation of shares, and good performance by corporate enterprises.

Unlike the previous year, the yields from different market areas dif-

fered significantly, with even the good yields not making it to the

high level of �005. Investors obtained the best yields from Russia and

the developing markets of Europe. Other developing markets and

the Finnish stock market also produced good yields, and Western

Europe reached a good level, as well. The North American market,

on the contrary, provided Euro-investors with scarcely satisfactory

yields due to the weakened dollar, and the share markets in Japan

performed the worst.

The pension liability fund’s shares were sold to a value of ap-

proximately EUR 55 million in �006. Despite the sales, the market

value of the shares was approximately EUR �04 million higher than

at the end of �005. This corresponds to a �8% appreciation. The

pension liability fund has continued to diversify investments and

minimize risks. The market value of the fund’s investments rose by

�6% during the year.

The Kela dividend yields totalled EUR 4� million. Dividend

yields for the previous year totalled EUR 74 million, but included

a dividend of almost EUR 40 million paid by Fortum Oyj as Neste

Oil Oyj shares. The average interest on current assets was �.97%

(�.�4% in �005) and interest yields totalled EUR �7 million (EUR

�� million in �005).

Funding national pension insuranceNational pension insurance (NPI) expenses totalled EUR �,0�5 mil-

lion, an increase of just under �% on the previous year. National

pension insurance income totalled EUR �,5�� million. Of total NPI

income, EUR �,097 million derived from employer contributions,

which funded �6% of national pension insurance expenses.

The central government paid EUR �,�67 million in benefit con-

tributions and its NPI contribution was increased from �9% in �005

to 40%. It financed �00% of childcare and disability allowances, sur-

vivors’ pensions, front-veterans’ benefits and housing benefits for

pensioners. In order to protect the solvency throughout the year, the

NPI must set a minimum level for its liquid assets. In �006, EUR 555

million in government liquidity guarantee payments were required

in order to achieve the minimum level set for liquid assets.

Funding national health insurance and rehabilitationTotal national health insurance expenditure was EUR �,7�8 million,

an increase of 5.�% from the previous year. The funding of national

health insurance was reformed as of January �, �006. In order to bal-

ance the funding of health insurance and to reinforce the insurance

principles, the national health insurance was financially divided into

earnings-related insurance and medical insurance.

The earnings-related insurance includes daily sickness allow-

ance, parental allowance, rehabilitation allowance, and occupational

health care, excluding compensation paid to the Finnish Student

Health Services. The cost of earnings-related insurance benefits to-

talled EUR �,74� million, an increase of 7.6% on the corresponding

costs for the previous year.

Employers funded 7�% of earnings-related insurance expenses,

and entrepreneurs �7%, excluding the minimum amounts for daily

allowances, which are funded by central government. In �006, em-

ployers’ health insurance costs amounted to EUR �,�7� million, and

daily allowance costs, which are new for wage-earners and entrepre-

neurs, amounted to EUR 480 million.

Medical insurance includes reimbursement of medical expenses,

e.g. reimbursements for prescribed medicines and doctors’ fees. Re-

habilitation costs, excluding rehabilitation allowances, are included in

the medical insurance. The cost of medical insurance benefits totalled

EUR �,76� million, an increase of �.7% from the previous year.

Medical insurance is funded half by the insured and half by the

government. Medical insurance contributions, collected from wage-

earners, entrepreneurs and recipients of benefits in order to fund the

medical insurance, amounted to EUR 978 million. The government

contributed EUR 98� million. In addition, the government funds the

shortfall in EU compensations from foreign reimbursements.

The funding reform was implemented according to plan, and

development during the first year was favourable. Due to the rapid

growth of total payroll, insurance premiums amounted to slightly

more than expected. Medical insurance expenditure, of which most

were for reimbursements for medicines increased slightly. Funding

for national health insurance grew stronger. Development during

�006 contributed to the decrease in insurance premiums in �007.

Funding other social securityOther social security benefit payments in �006 totalled EUR 4,077

million, a decrease of �.6% from the previous year. Of other social

security benefit payments, the government funded EUR �,449 mil-

lion. EUR 56 million came from wage earners’ unemployment in-

surance contributions. Since the beginning of �006, municipalities

funded half of the labour market subsidies’ ‘passive period’ for those

unemployed for over 500 days. Municipalities contributed EUR �78

million towards labour market subsidies and EUR �94 million to-

wards child care subsidies.

Administration expensesAdministration expenses totalled EUR �57.6 million, which amounts

to �.�% of the total expenses. Administration expenses increased

8.�% compared with the previous year. The increase is due to a

change in contribution payments. In �006, contributions to the

pension liability fund amounted to EUR 4�.� million, in �005 to

only EUR �0.6 million, as dividend yields that year were exception-

ally high.

�7

Financial statements

Wages and salaries totalled EUR �6�.7 million, which was an

increase of 0.8% on the previous year. Staff-related costs, excluding

contribution payments, amounted to EUR �5.� million.

Other administration expenses totalled EUR 7�.4 million, an in-

crease of 7.�% on the previous year. This includes EUR �0.� million

in IT costs, EUR 7.9 million in depreciation of fixed assets, and EUR

�5.8 million in income items reducing administration expenses.

Purchased services, which consisted largely of tax costs paid to

the tax administration, came to a total of EUR 54.� million.

Pension liability fundKela’s actuarial liability for staff pensions totalled EUR �,450 mil-

lion at the end of the year, with expenditure on current pensions

accounting for EUR 6�8 million. The full pension liability increased

by EUR 7� million in �006, because of pay and pension rises and an

increase in pension accrual.

Pension liability covered by employer contributions amounted to

EUR 4�% of the total liability. Pension liability covered by employee

pension contributions was EUR �7 million. The amount of pension

liability covered was a total of EUR 6�� million at the end of �006.

In addition, the pension liability fund had EUR 54� million worth

of funds, which were mostly from revaluation.

EUR 4�.� million in employer contributions was paid into the

pension liability fund. In addition, employee contributions amount-

ed to EUR 8.0 million, EUR �.8 million of which was used to cover

pension liability.

According to the so-called VILMA procedure, the Local Govern-

ment Pensions Institution, the State Treasury and the Central Church

Fund paid out EUR 0.6� million in pensions accrued at Kela, while

EUR 0.58 million were paid by Kela. Kela paid EUR 5�.� million in

employment-based pensions, an increase of 6.�% on �005.

Employers’ health insurance payment criteria% of wages

National pension insurance 2005 2006 2007Private sector1Class I contributions 1,366 0,898 0,901Class II contributions 3,566 3,098 3,101Class III contributions 4,466 3,998 4,001

Public sectorCentral government and Åland 3,966 1,948 1,951Municipalities and the Church 2,416 1,948 1,951

Health insurancePrivate sector 1,60 2,06 2,05Public sectorCentral government and Åland 2,85 2,06 2,05Municipalities and the Church 1,60 2,06 2,05

1 Contribution class is determined on the basis of depreciationrecorded by the company and the ratio of depreciation to wages.

HEALTH INSURANCE PAYMENT CRITERIA OF THE INSURED

2005 2006 2007

Health insurance payment1 1,50Wage-earners and entrepreneurs insured by Farmers’ Pension Act (MYEL)Medical expenses1 1,33 1,28Daily allowance2 0,77 0,75Entrepreneurs insured by Self-Employed Persons’ Pensions Act (YEL)Medical expenses1 1,33 1,28Daily allowance2 1,02 0,91Recipients of pensions and benefitsMedical expenses1 1,50 1,45

1 Percentage of earnings taxed with municipal taxation, percentage of net earnings for entrepreneurs.2 Percentage of taxable salary and entrepreneurs’ earned income.

�8

Financial statements

Outlook for the future

The client and social impactOur aim is that the social security provided by Kela is trusted, that it

is clearly understandable and of reasonable quality. We also aim to

provide Kela customers all over the country with the best possible

public sector service. As an expert, Kela actively participates in the

development of social security, thereby creating prerequisites for

employment.

Kela services are segmented according to the different stages of

the customers’ lives. Service channels include the Internet, telephone,

office and joint services, services provided at post offices and direct

reimbursement. Kela is gradually implementing a specialization of

services and solutions, speeding up the development of Internet-

based services and improving the efficiency of its processes. The

office network way of thinking is giving way to the service network

way of thinking.

Good customer service is based on customer focus, expertise

and cooperation. Customers are steered towards the most appro-

priate service channel based on what is easy and close to them. The

customer’s entire life situation is taken into account in the service

provided. The procedure for claiming benefits will be made simpler

and easier, and spoken information will correspond to written infor-

mation as much as possible. Claims determination will be automated

and direct reimbursement procedures further developed.

Services for special groups, such as immigrants and the disabled,

will receive particular attention in the development of the service

network. The change in the office network will be compensated for

by other service channels and shared services. Office opening hours

will be made more flexible in accordance with customer needs. Cus-

tomers are seen as Kela customers, not as customers of a particu-

lar office. The structure of the office network and the number of

offices will be assessed on the basis of customer needs. Kela will

also launch shared services and determine targets for cooperation.

However, Kela will continue to be in charge of taking the decisions

concerning benefits in these shared services.

Service channels and the content of services will be further de-

veloped and the implementation of electronic services sped up. The

telephone services of contact centers will be extended to cover the

entire country.

Directing customers to the most appropriate service channels

will be supported by communication, and the services will be ac-

tively marketed. Stakeholder cooperation will be enhanced, and at

the same time, discussion and cooperation with other customer

service operators increased.

The aim is to make the whole organization service-orientated,

and consistent modes and methods of operation will be adopted.

The management organization must support reforms. A process-

orientated organization will be promoted.

While developing benefits, Kela will also highlight the effect of

reforms on benefits, their costs and their implementation. New tasks

to be undertaken by Kela, such as the processing of maintenance

support and the maintenance of the national electronic archive, will

affect Kela’s services and cooperation with others.

Renewal of personnel and the working communityIn personnel policy, the starting points will be the know-how related

to services, solutions and tools, and expertise. The number and al-

location of personnel must be correct, and the quality of work will

be measured. We will look after the work ability and well-being of

our personnel, and improve the content of work and the functional-

ity of the work community. We will invest in induction, training and

opportunities for advancement, recruitment, and reward systems.

ProcessesMatters are handled smoothly by means of a variety of service chan-

nels, and with customer-orientation, swiftness, consistency and ex-

actness. Constant attention is paid to the comprehensibility and clar-

ity of decisions and customer documents. Operations are established

on a functional division of labour and consistent working practices

and systems. We assess and improve the

performance of our processes on the basis of customer satisfaction,

the performance of the work community, economic efficiency and

productivity, as well as the quality of decisions and the key figures

related to processing times. By predicting risks we can ensure the

smooth flow of processes and the achievement of targets.

EconomicsIn �007, Kela’s total income and expenditure are expected to reach

EUR ��.� billion. Pension insurance benefits make up EUR �.9 bil-

lion, health insurance and rehabilitation benefits make up just under

EUR �.8 billion, and other social security benefits EUR 4.� billion

of the expenditure.

The Ministry of Social Affairs and Health is undertaking an of-

ficial review of whether the government guarantee payment to Kela’s

national pension insurance fund could be abolished. The review will

survey the liquidity of Kela’s health insurance and pension insurance

funds, the focusing of operational expenses, funding, and the use

of investment assets. The review is due to be completed by March

��, �007.

From the beginning of �008, Kela’s funding will change so that

pensioners’ care allowance will be directly funded by the govern-

ment. At the same time, municipality categories based on living ex-

penses will be abolished.

�9�9

Kela´s administration

KELA’S ADMINISTRATION

Kela’s administration, organs and functions are provided for in

the Act on the Social Insurance Institution (7��/�00�). In accord-

ance with Section � of the Act, Kela is an independent institution

under public law, the administration and operations of which are

supervised by Trustees appointed by Parliament. In accordance

with Section � of the Act, the functions related to social security are

prescribed in the different Acts related to benefits. In accordance

with Section �, Kela organs comprise the Trustees and a Board of

Directors.

Pursuant to Section 5(�), Kela’s internal regulations have been

approved by the Trustees. The regulations prescribe the procedures

the Board is to follow in dealing with matters, the functions of the

Director-General and other directors, the organization of central

administration, submissions, and the functions of regional man-

agers and district managers, and eligibility requirements for these

positions.

TrusteesThe Parliament appoints �� Trustees and approves their service

regulations. The Trustees’ term of office is the length of the elec-

toral period, i.e. four years.

The function of the Trustees is to supervise the administration

and operations of Kela, taking into account, among other things,

the quality and availability of Kela’s services. The Trustees appoint

the members of the Board of Directors and submit a proposal to

the President of Finland regarding the appointment of the Director-

General and the Directors. Other functions of the Trustees include

approval of Kela’s internal regulations, selection of Kela’s auditors,

approval of the accounting principles based on the recommenda-

tion of the Board of Directors, approval of the financial statements,

decision on releasing the Board from liability, and submitting a re-

port on their operations to Parliament annually. The Parliament has

approved the service regulations for the Trustees, which prescribe,

among other things, the functions and meetings of the Trustees.

Board of DirectorsThe Board of Directors consists of a maximum of ten members,

eight of whom are appointed by the Trustees. The Director-General

of Kela and his or her deputy are members of the Board. In appoint-

ing the Board members, the potential nominees’ expertise in social

security, management, administration, economy and investment

operations are taken into account. One of the Board members is

a representative of the Ministry of Social Affairs and Health, one

a representative of the central employer organizations, one of the

central organizations of trade unions, and one of the Central Union

of Agricultural Producers and Forest Owners.

The Board’s term of office isthree years. The Board currently has

�0 members. A representative of the staff has voice without vote at

Board meetings.

The function of the Board is to manage and develop Kela’s opera-

tions. The Board holds general authority to manage Kela’s business.

Its tasks include the annual approval of Kela’s operational and finan-

cial plan, preparation of Kela’s annual report and financial statements

every year, preparation of Kela’s service regulations for approval by

the Trustees, deciding on the general principles of investing Kela’s

assets, make decisions on the sale and purchase of Kela’s real estate,

deciding on the division of labour between the Director-General and

the Directors, and entering into employment contracts with senior

managers. The Chair, Deputy Chair and members of the Board make

annual declarations on insider holdings similar to those in Financial

Supervision. As a rule, the Board convenes monthly.

Committees elected by the Board of DirectorsThe Board has appointed a Rewards Committee and an Audit Com-

mittee. The Rewards Committee, which deals with executive remu-

neration, consists of the Chair of the Board, the Deputy Chair of the

Board, the Director-General, and his or her deputy.

The Audit Committee supervises and leads internal audits and

their coordination, and the review of accounts. The members of the

Audit Committee include the Chair of the Board of Directors as the

Chair, and, as members, the Director-General, his or her deputy, the

Supervisory Auditor and the Director of Internal Audit, who also

acts as the secretary for the Committee.

Director-General and DirectorsKela has a Director-General and a maximum of five Directors, ap-

pointed by the President of Finland upon recommendation by the

Trustees. The President of Finland appoints one of the Directors as

the deputy for the Director-General. The eligibility requirements

for the Director-General and the Directors are set by a government

decree. Relevant parts of the State Civil Servants Act (750/�994) ap-

ply to the employment relationships of the Director-General and

the Directors.

The Kela Board has approved the division of labour between the

Director-General and the Directors. The functions of the Director-

General and the Directors are defined in the internal regulations.

The Director-General is responsible for the strategic planning

and operative management and development of Kela, the operations

of regional and local administration, the implementation of Board

decisions, and any units and related issues entrusted to him or her

by the Board. On the recommendation of the Director-General, and

based on the operational and financial plan, the Board enters into

performance contracts with the Directors. The Director-General en-

ters into performance contracts with regional managers. The Direc-

tor-General undertakes performance negotiations related to regional

administration in cooperation with the Directors.

The Directors are responsible for strategic planning for and op-

erative management and development of the units entrusted to them

�0

Kela´s administration

by the Board. The Directors act as each other’s deputies as deter-

mined by the Board.

Management groupThe management group comprises the Directors and is led by the

Director-General. It handles proposals to be submitted to the Board

and other important issues that require discussion that extends be-

yond any individual area of operation. As a rule, the management

group convenes weekly.

Decision-making procedures regarding investmentsThe Act on the Social Insurance Institution makes provisions for

investment of equity and investment plans. In accordance with the

Act, when investing assets of the national pension insurance fund,

the national health insurance fund, or the pension liability fund, the

security, profit, cash convertibility, adequate diversity and spread

of the investments must be ensured. The Kela Board is to prepare

an investment plan regarding the investment of the assets. The in-

vestment plan must, in particular, take into account the nature of

the funds and the requirements of investment operations. Under

delegation by the Board of Directors, the Director-General and the

head of the Economic Department hold responsibility for investing

the assets in accordance with the investment plan.

Remuneration and reward proceduresThe service regulations regarding the Trustees provide for their re-

muneration. The Trustees determine the remuneration of members

of the Board of Directors. The Board approves the Director-General

and Directors’ salary, pension and other benefits. The Board has also

approved the principles for the remuneration of employees. Informa-

tion on the remuneration of the Director-General, the Directors and

senior management is public.

Employment of employees is provided for in the Board decision

regarding authority in administration issues.

Internal auditsIn accordance with the internal regulations, the Internal Audit unit

functions under the Director-General as part of central administra-

tion, and its service regulations are approved by the Board of Kela.

In accordance with the service regulations, the Internal Audit unit

forms part of Kela’s monitoring system, and is used as a tool by the

Board, the Director-General and the Management Group to imple-

ment their supervisory responsibility.

Internal Audit prepares an annual audit plan for each year. The

Audit Committee considers the annual plan, and the Director-Gen-

eral approves it. The annual plan is also provided to the Board for

information. Internal Audit complies with international standards

set for internal audits.

The Internal Audit unit comprises the Director of Internal Audit

and an appropriate number of internal auditors and other assisting

staff, as required by operations.

Internal Audit reports on the results of its audits to the contact

person for the target of the audit and his or her supervisor. In addi-

tion, Internal Audit prepares summary reports to the Director-Gen-

eral and the Audit Committee every four months. The Director of

Internal Audit approves audit reports before they are released.

Risk management at KelaThe Kela Board has decided on the principles and responsibilities

of Kela’s risk management. Common risk management principles

underpin the entire risk management framework of Kela and ensure,

for example, that Kela’s mission and strategic and operative targets

can be achieved. Strategic risks at the institution level and their pri-

oritization and administrative measures are approved by the Kela

Board in conjunction with the approval of Kela’s strategy.

Risk management has been adopted as part of performance man-

agement. Each unit has included a risk register and a risk map in its

performance agreement. Risks that eventuated and ‘near miss’ situa-

tions are monitored through the performance reports of the units.

Reports on the status of risk management are submitted to the

Director-General, who has the overall responsibility for organizing

risk management and ensuring its smooth functioning. The reports

are also presented to the Board, which is responsible for ensuring

that adequate and necessary risk management principles and meas-

ures are in place at Kela.

Audit of the financial statementsThe Trustees appoint the necessary amount of auditors and approve

their service regulation. Currently there are eight auditors. The au-

ditors have elected a supervisory auditor amongst themselves, who

presents a quarterly supervisory report to the auditors for considera-

tion. The supervisory auditor’s report is also provided to the Trustees

and the Board for information.

The role of the auditors is to audit Kela administration, asset

management and operations. In undertaking the audit, the relevant

provisions of the Auditing Act (9�6/�994) apply. The auditors under-

take the audit, and provide the Trustees with the auditors’ report by

the April following the financial year. The Trustees approve remu-

neration for the auditors.

CommunicationsKela has a communication plan, which describes the objectives and

principles of communication. The Administration Department in-

cludes a Communications unit, which is responsible for Kela’s internal

and external communications. The Communications Manager is the

chief editor of Kela publications and the chair of Internet editors.

Kela maintains an extensive website (www.kela.fi), which outlines

Kela operations by operational area. The Kela website is maintained

by the web editors. In addition, Kela has an intranet site called Ke-

lanetti. Kela also publishes three publications: Kelan Sanomat, FPA-

bladet and Sosiaalivakuutus. In addition, Kela publishes an internal

magazine called Yhteispeli.

��

��

Kela

The Social Insurance Institution of Finland

Organization

Contact information

Organisaatio

Jorma Huuhtanen, Director-General

Administration Department,

Economic Department, Internal Audit,

Insurance Districts, Local Offices

Matti Puhakka, Director

Director-General’s deputy

Human Resources Department,

Information Systems Department, IT Centre

Helena Pesola, Director

Pension and Income Security Department,

Actuarial and Statistical Department

Mikael Forss, Director

Health and Income Security Department,

Research Department

Asko Apukka, Director

Office Services Department

Main officeNordenskiöldinkatu 12PO Box 450, 00101 HelsinkiTelephone 020 634 11

Pitäjänmäki officeHöyläämötie 1 a BPO Box 78, 00381 HelsinkiTelephone 020 634 11

Computer CentrePO Box 371, 40101 JyväskyläTelephone 020 634 11

Centre for Student Financial AidVapaudenkatu 48-50PO Box 228, 40101 JyväskyläTelephone 020 634 6611

REGIONAL OFFICES

Regional Office for Northern FinlandSepänkatu 18PO Box 190, 90101 OuluTelephone 020 635 4211

Regional Office for Western FinlandKalevankatu 17 APO Box 361, 60101 SeinäjokiTelephone 020 635 5221

Regional Office for Eastern FinlandSuokatu 40 A, 2nd floorPO Box 188, 70101 KuopioTelephone 020 635 7211

Regional Office for Southwestern FinlandEerikinkatu 26PO Box 365, 20101 TurkuTelephone 020 635 9611

Regional Office for Southern FinlandKirkkokatu 8PO Box 149, 15141 LahtiTelephone 020 635 1511

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